Deepak Muthreja, a management consultant donates to non-profit organisations like World Vision and The United Nations Children’s Fund (Unicef) regularly. “It started as a way of wanting to do something for the society, even if in a small way. And the fact that it helped in saving tax was an added benefit,” he says.
The contribution gets deducted from Muthreja’s credit card and he gets a receipt by e-mail which he prints out and uses for tax exemption.
Salaried individuals can claim tax exemption for making donations under Section 80G and 80GGA of the Income Tax Act. You claim for donations made towards local schools, temple or hospital trusts, sports associations, educational and scientific research organisations.
| SAVE AS YOU PAY |
| * Pick a cause or an organisation |
| * Research well on charitable trusts online before donating |
| * Check if the organisation is eligible for tax exemption under Section 80G as not all are |
| * If the donation receipt has no mention of tax exemptions, ask for a certificate |
| * Pay by cheque or account transfer or net banking if donating over Rs 10,000 |
| * Donations in kind (food, clothing, or medicines) cannot be claimed |
| & Ensure the receipt mentions your name, amount donated, name and registration number of the trust |
While World Vision and Unicef are well known organisations, Muthreja also donates to lesser known ones. He does this because he personally knows the people behind the these firms and hence is sure about the fact that his money is being used for the right purpose. “It is important to know who are the people running a charitable organisation. For instance, during a natural calamity, there are so many organisations collecting money. But I would be wary of donating unless I am sure of the organisation and the people behind it,” he says.
True, and many may have faced situations where inspite of making a donation, they’ve never received the receipt to show for tax benefits or even for their own record. Therefore, it is always advised to check before donating to a charitable trust.
Today, there are organisations supporting various causes like children’s upliftment, poverty eradication, women’s issues, problems of the elderly, protection of the forests or environment, physically challenged and so on. And in all likelihood someone just starting off may be confused when he/she has to choose between them. While there are many who donate to all and sundry, you could do well by choosing either a cause or an organisation.
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But to be able to do that, you need to do your home-work well. There is no dearth of information on non-government organisations (NGOs) online, or get brochures and read up, ask friends / family and colleagues who donate regularly before zeroing in on one organisation. Even religious institutions have dedicated websites which contain all their information.
Rajesh Iyer, head - products at Kotak Wealth Management says that since donations are driven more by the cause than by tax exemption, it is important for donors to ensure that the money is going for the right cause and is being utilised in the right manner. “Today organisations allow you to see keep track of how the money is spent. For instance, if you are sponsoring a child, you can meet him/her, follow up on their studies and progress,” he says.
While for many donations who are for the larger good of the cause and not tax benefit, for many others it is a good way of saving while giving. And for such individuals it is important to check if the NGO they are choosing qualifies for exemption under Section 80G or not, because not all do. But, you don’t need to fret as you could ask them for a certificate / receipt of payment to show for tax purpose. Make sure the receipt mentions the name of the donor (your name), amount donated, the name and registration number of the trust you donated for.
The amount exempted from taxation differs depending on the nature of the organisation. For instance, most government-backed causes or organisations offer 100 per cent tax exemption on the money donated, without any condition. These include Prime Ministers’ Relief Fund, Drought Relief Fund, Earthquake Relief Fund and so on.
For most other causes the exemption can be 50 per cent of the donation, provided the amount does not exceed 10 per cent of the donor’s total income. In some cases 100 per cent exemption may be allowed, subject to the cap of 10 per cent of total income. So, if you are planning to donate Rs 25,000 and depending on the organisation 50 per cent of the amount can be exempted from taxation, that is, Rs 12,500. If you are in the 30 per cent tax bracket, then the saving works out to about Rs 3,800.
The Union Budget 2012-13 said that there would be no tax exemption available for donations above Rs 10,000 and in cash. This was done essentially to bring down the huge amounts of cash exchanging hands in the system.
Donations made to religious institutions like temples, mosques or gurudwaras are also recognised under Section 80G. But these must be for specific purposes like repair of the building or so on. “The tax authorities have to be convinced that the donation is for a charitable cause and not only for any religion,’’ explains Homi Mistry, partner at Deloitte Haskins & Sells.
Whatever the cause, the organisation has to be registered with the government to qualify for tax exemptions. So, it is safe to donate to a well known one for starters or donate to lesser known ones only if you know the people behind the cause like Muthreja. This will help you in ensuring your money is used in the right manner and for the right cause. As you gain experience in this, you could donate to lesser known ones as there is a risk of non-recognition with these organisations.
In some cases, often for natural calamities like floods or earthquake, companies deduct amounts from their employees’ salaries, say for instance, a day of half a day’s salary, as contribution for a cause. Such donations are also eligible for tax exemption. But, you need to ask for it from your employer. If you are in doubt about the status of the organisation don’t hesitate to ask the accountant of finance department about their status, says Mistry.